SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
MARCH 31, 1997 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
_______________ TO _______________
Commission file number 1-2199
ALLIS-CHALMERS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 39-0126090
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Box 512, Milwaukee, Wisconsin 53201-0512
(Address of principal executive offices) (Zip code)
(414)475-2000
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X
No
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. Yes X No
At May 9, 1997 there were 1,003,028 shares of Common Stock outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALLIS-CHALMERS CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF OPERATIONS
Three Months Ended
March 31
1997 1996
(thousands, except per share)
Sales $ 1,028 $ 985
Cost of sales 817 695
------- -------
Gross Margin 211 290
Marketing and administrative expense 369 326
------- -------
Loss from Operations (158) (36)
------- -------
Other income (expense)
Interest income 15 33
Interest expense (8) (9)
Pension expense (466) (339)
Other 13 12
------- -------
Net Loss $ (604) $ (339)
======= =======
Net Loss per Common Share $
(.60) $ (.34)
======= =======
STATEMENT OF ACCUMULATED DEFICIT
Three Months Ended March 31 1997 1996
(thousands)
Accumulated deficit - beginning of year $ (9,746) $(8,018)
Net loss (604) (339)
-------- -------
Accumulated deficit - March 31 $(10,350) $(8,357)
======== =======
This interim statement is unaudited.
The accompanying Notes are an integral part of the Financial Statements.
<PAGE>
ALLIS-CHALMERS CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF FINANCIAL CONDITION
March 31, December 31,
1997 1996
(thousands)
Assets
Cash and short-term investments $1,024 $ 1,568
Trade receivables, net 739 652
Non-trade receivables 52 36
Inventories, net 77 93
Other current assets
133 100
------- ------
Total Current Assets 2,025 2,449
Net property, plant and equipment 1,024 937
------- ------
Total Assets $3,049 $ 3,386
======= ======
Liabilities and Shareholders' Deficit
Current maturities of long-term debt $ 55 $ 54
Trade accounts payable 138 82
Accrued employee benefits 150 136
Accrued pension liability 7,415 6,949
Reserve for legal expenses 50 50
Other current liabilities 131 356
------ ------
Total Current Liabilities 7,939 7,627
Accrued pension liability 8,131 8,131
Accrued postretirement benefit
obligations 962 993
Long-term debt 265 279
Shareholders' deficit
Common stock, ($.15 par value,
authorized 2,000,000 shares,
outstanding 1,003,028 at March 31,
1997 and December 31, 1996) 152 152
Capital in excess of par value 8,155 8,155
Accumulated deficit (accumulated
deficit of $424,208 eliminated
on December 2, 1988) (10,350) (9,746)
Pension liability adjustment
(12,205) (12,205)
------- -------
Total Shareholders' Deficit (14,248) (13,644)
Commitments and contingent liabilities
------- -------
Total Liabilities and Shareholders'
Deficit $3,049 $ 3,386
======= =======
This interim statement is unaudited.
The accompanying Notes are an integral part of the Financial Statements.
<PAGE>
ALLIS-CHALMERS CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CASH FLOWS
Three Months Ended
March 31
1997 1996
(thousands)
Cash flows from operating activities:
Net loss $ (604) $ (339)
Adjustments to reconcile net loss to
net cash provided (used) by
operating activities:
Depreciation and amortization 35 24
Change in working capital:
Increase in receivables, net (103) (266)
Decrease (increase) in inventories 16 (63)
Increase in trade accounts payable 56 58
(Decrease) increase in other
current items (244) 89
Increase in accrued pension
liability, net 466 134
Other (31) (12)
------ -------
Net cash (used) by operating
activities (409) (375)
Cash flows from investing activities:
Capital expenditures (122) (12)
Cash flows from financing activities:
Net proceeds from issuance of
long-term debt - -
Payment of long-term debt (13) (9)
------ -------
Net cash (used) by financing
activities (13) (9)
------ -------
Net (decrease) in cash and
short-term investments (544) (396)
Cash and short-term investments at
beginning of period 1,568 1,881
------- -------
Cash and short-term investments at
end of period $ 1,024 $ 1,485
======= =======
Supplemental information - interest paid $ 7 $ 9
======= =======
This interim statement is unaudited.
The accompanying Notes are an integral part of the Financial Statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ACCOUNTING POLICIES
This interim financial data should be read in conjunction with the
consolidated financial statements and related notes, management's
discussion and analysis and other information included in the Company's
1996 Annual Report.
All adjustments considered necessary for a fair presentation of the
results of operations have been included in the unaudited financial
statements. The results of operations for any interim period are not
necessarily indicative of Allis-Chalmers operating results for a full
year.
NOTE 2 - POSTRETIREMENT OBLIGATIONS--PENSION PLAN
Effective January 1, 1994, the Company's independent pension actuaries
changed the assumptions for mortality and administrative expenses used to
determine the liabilities of the Allis-Chalmers Consolidated Pension Plan
(Consolidated Plan). Primarily as a result of the changes in mortality
assumptions to reflect decreased mortality rates of the Company's
retirees, it was determined that the Consolidated Plan was underfunded on
a present value basis by approximately $10.0 million. In the fourth
quarter of 1993, the Company recorded the liability related to this
underfunded position, resulting in the elimination of its shareholders'
equity. Subsequent updates to the underfunding calculation have increased
the present value of the underfunding obligation to $15.1 million as of
December 31, 1996. As a result of the underfunding condition and pursuant
to ERISA minimum funding requirements, on January 15, 1996 the Company
made a cash contribution to the Consolidated Plan in the amount of
$205,000. Additional cash contributions required to eliminate this
underfunding were estimated to be $2.3 million in 1996, $3.6 million in
1997 and $12.2 million between 1998 and 2002. Except for the contribution
of $205,000, subsequent contributions due through the date of this report
have not been paid. Because unpaid contributions exceed $1,000,000, a
lien has been filed by the Pension Benefit Guaranty Corporation (PBGC)
against the Company in favor of the Consolidated Plan. The unpaid
contributions result in additional tax liability for the period of
nonpayment and through the passage of time, may result in Internal Revenue
Service (IRS) excise tax penalties if they remain unpaid. Given the
inability of the Company to fund the entire underfunding obligation with
its current financial resources, a Notice of Intent to terminate the
Consolidated Plan was filed with the PBGC on February 12, 1997 to become
effective April 14, 1997. The consequence of the Consolidated Plan
termination is a liability to the PBGC significantly in excess of the
Company's current net worth. While discussions with the PBGC have not
reached a conclusion, the Company intends to continue such discussions
concerning its obligations under the Consolidated Plan. Although it is
not possible to predict the outcome of such discussions, if the Company is
unable to negotiate a settlement with the PBGC on terms that are
acceptable to the Company, Allis-Chalmers will be required to evaluate its
options, which include attempting to raise additional capital to eliminate
the underfunding or seeking protection from its creditors by commencing
another voluntary bankruptcy proceeding under the federal bankruptcy laws.
The Company does not believe it will be able to raise additional capital
to meet its obligations under the Consolidated Plan. In the meantime, the
Company continues to administer the Consolidated Plan.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Sales in the first quarter of 1997 totaled $1,028,000 an increase from
$985,000 in the first quarter of 1996. Operations of the Company consist
of Houston Dynamic Service, Inc. (HDS), the Company's machinery repair and
service subsidiary.
Gross margin, as a percentage of sales, was 20.5% in the first quarter of
1997, a decrease from 29.4% in 1996 primarily due to competitive pricing
along with the product mix.
Marketing and administrative expense was $369,000 in the first quarter of
1997 compared with $326,000 in the prior year. A significant portion of
the Company's administrative expenses relates to expenses for Securities
and Exchange Commission and other governmental reporting as well as legal,
accounting and audit, tax, insurance and other corporate requirements of a
publicly held company.
Other expense was $453,000 in the first quarter of 1997 which included a
non-cash expense of $466,000 for pension expense on the unfunded liability
of approximately $15.1 million associated with the Consolidated Plan.
Pension expense in the first quarter of 1996 was $339,000.
The Company incurred a net loss of $604,000, or $.60 per common share, in
the first quarter of 1997 compared with a net loss of $339,000, or $.34
per common share, in the same period of 1996. The loss in the first
quarter of 1997 included an expense of $466,000 for pension expense on the
unfunded liability of approximately $15.1 million associated with the
Consolidated Plan.
Financial Condition and Liquidity
Cash and short term investments totaled $1.0 million at March 31, 1997, a
decrease from $1.6 million from December 31, 1996.
Trade receivables at March 31, 1997 were $739,000, reflecting an increase
from the December 31, 1996 level of $652,000, primarily due to the timing
of the billings for increased sales at the end of the quarter.
Non-trade receivables were $52,000 at March 31, 1997 reflecting a slight
increase from $36,000 at December 31, 1996.
Inventory at March 31, 1997 was $77,000, a decrease from $93,000 at year
end 1996.
Long-term debt, including current maturities at March 31, 1997, was
$320,000, a decrease from $333,000 at December 31, 1996.
Other current liabilities at March 31, 1997 were $131,000, a decrease from
$356,000 at December 31, 1996. A payment of approximately $198,000 was
made to the A-C Reorganization Trust for legal costs paid by the A-C
Reorganization Trust on behalf of the Company, during the first quarter.
The A-C Reorganization Trust, pursuant to the Plan of Reorganization,
funds all costs incurred by Allis-Chalmers which relate to implementation
of the Plan of Reorganization, thus avoiding additional demands on the
liquidity of the Company. Such costs include an allocated share of
certain expenses for Company employees, professional fees and certain
other administrative expenses.
In 1988, the Plan of Reorganization provided for the contribution of $53.8
million to the Company's then-existing 11 salaried and inactive hourly
pension plans. This funding, in addition to the then-existing assets in
the pension plans, was used to establish a high-grade fixed income
securities portfolio. The market value of the portfolio assets was
matched to the present value of the expected pension benefits and
administrative expenses of the plans in a way intended to make the pension
fund immune from interest rate fluctuations, thus substantially
eliminating the need for future Company contributions. Effective January
1, 1989, the 11 remaining Allis-Chalmers pension plans were consolidated
into a single plan, the Consolidated Plan. Pursuant to its obligations
under the Plan of Reorganization, the Company continues as the plan
sponsor for the Consolidated Plan.
For the years 1989 through 1994, retirees eligible for benefits under the
Consolidated Plan as a group, outlived the projections based on the
mortality assumptions used in the Plan of Reorganization for funding the
Consolidated Plan. During this period, actual administrative expenses
were slightly in excess of assumed levels. The Company was advised by its
independent actuaries that effective January 1, 1994 it was required to
reflect such decreased mortality for funding calculation purposes. This
change in the mortality assumptions and an increase in the assumption for
future administrative expenses created an underfunded condition in the
Consolidated Plan. Based on the most recent recalculation, the
underfunding was $15.1 million on a present value basis as of December
31, 1996.
As a result of the underfunding condition and pursuant to ERISA minimum
funding requirements, on January 15, 1996 the Company made a cash
contribution to the Consolidated Plan in the amount of $205,000.
Additional cash contributions required to eliminate this underfunding were
estimated to be $2.3 million in 1996, $3.6 million in 1997 and $12.2
million between 1998 and 2002. Except for the contribution of $205,000,
subsequent contributions due through the date of this report have not been
paid. Because unpaid contributions exceed $1,000,000, a lien has been
filed by the PBGC against the Company in favor of the Consolidated Plan.
The unpaid contributions result in additional tax liability for the period
of nonpayment and through the passage of time, may result in IRS excise
tax penalties if they remain unpaid. Given the inability of the Company
to fund the entire underfunding obligation with its current financial
resources, a Notice of Intent to terminate the Consolidated Plan was filed
with the PBGC on February 12, 1997 to become effective April 14, 1997.
The consequence of the Consolidated Plan termination is a liability to the
PBGC in excess of the Company's current net worth. While discussions with
the PBGC have not reached a conclusion, the Company intends to continue
such discussions concerning its obligations under the Consolidated Plan.
Although it is not possible to predict the outcome of such discussions, if
the Company is unable to negotiate a settlement with the PBGC on terms
that are acceptable to the Company, Allis-Chalmers will be required to
evaluate its options, which include attempting to raise additional capital
to eliminate the underfunding or seeking protection from its creditors by
commencing another voluntary bankruptcy proceeding under the federal
bankruptcy laws. The Company does not believe it will be able to raise
additional capital to meet its obligations under the Consolidated Plan.
In the meantime, the Company continues to administer the Consolidated
Plan.
The Environmental Protection Agency (EPA) and certain state environmental
protection agencies have requested information in connection with eleven
potential hazardous waste disposal sites in which products manufactured by
Allis-Chalmers before consummation of the Plan of Reorganization were
disposed. The EPA has claimed that Allis-Chalmers is liable for cleanup
costs associated with several additional sites. The EPA's claims with
respect to one other site were withdrawn in 1994 based upon settlements
reached with the EPA in the bankruptcy proceeding. In addition, certain
third parties have asserted that Allis-Chalmers is liable for cleanup
costs or associated EPA fines in connection with additional sites. In one
of these instances a former site operator has joined Allis-Chalmers and 47
other potentially responsible parties as a third-party defendant in a
lawsuit involving cleanup of one of the sites. In each instance the
environmental claims asserted against the Company involve its
prebankruptcy operations. Accordingly, Allis-Chalmers has taken the
position that all cleanup costs or other liabilities related to these
sites were discharged in the bankruptcy. In one particular site, the
EPA's Region III has concurred with the Company's position that claims for
environmental cleanup were discharged pursuant to the bankruptcy. While
each site is unique with different circumstances, the Company has notified
other Regional offices of the EPA of this determination associated with
the Region III site. The Company has not received responses from the
other Regional offices. No environmental claims have been asserted
against the Company involving its postbankruptcy operations.
The Company's principal sources of cash include earnings from the
operations of HDS and interest income on marketable securities. The cash
requirements needed for the administrative expenses associated with being
a publicly held company are significant, and the Company will continue to
use cash generated by operations to fund such expenses. However, the
Company does not have sufficient cash to cover the unfunded pension
liability payments.
The necessity to assure liquidity emphasizes the need for the Company to
continue in a prudent manner its search for appropriate acquisition
candidates in order to increase the Company's operating base and generate
positive cash flow.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See PART I. Item 2, "Management's Discussion and Analysis."
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: (27) - Financial Data Schedule
(b) Reports on Form 8-K
On February 14, 1997 the Company filed a Current Report on Form 8-K
dated February 14, 1997 to report (under Item 5 of Form 8-K) that the
Company filed a Notice of Intent to Terminate the Consolidated Plan
with the PBGC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Allis-Chalmers Corporation
(Registrant)
/s/ John T. Grigsby, Jr.
John T. Grigsby, Jr.
Vice Chairman, Executive Vice
President and Chief Financial
Officer
May 12, 1997
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ALLIS-CHALMERS CORPORATION AS OF AND FOR THE
THREE MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 124
<SECURITIES> 900
<RECEIVABLES> 821
<ALLOWANCES> 30
<INVENTORY> 77
<CURRENT-ASSETS> 2,025
<PP&E> 2,385
<DEPRECIATION> 1,361
<TOTAL-ASSETS> 3,049
<CURRENT-LIABILITIES> 7,939
<BONDS> 320
8,307
0
<COMMON> 0
<OTHER-SE> (22,555)
<TOTAL-LIABILITY-AND-EQUITY> (3,049)
<SALES> 0
<TOTAL-REVENUES> 1,028
<CGS> 0
<TOTAL-COSTS> 817
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (604)
<INCOME-TAX> 0
<INCOME-CONTINUING> (604)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (604)
<EPS-PRIMARY> (.60)
<EPS-DILUTED> (.60)
</TABLE>
